Fourth Session, 41st Parliament (2019)
OFFICIAL REPORT
OF DEBATES
(HANSARD)
Tuesday, October 29, 2019
Afternoon Sitting
Issue No. 285
ISSN 1499-2175
The HTML transcript is provided for informational purposes only.
The PDF transcript remains the official digital version.
CONTENTS
| Orders of the Day | |
TUESDAY, OCTOBER 29, 2019
The House met at 1:35 p.m.
[Mr. Speaker in the chair.]
Orders of the Day
Hon. M. Farnworth: I call continued committee stage on Bill 33, the Securities Amendment Act.
Committee of the Whole House
BILL 33 — SECURITIES
AMENDMENT ACT,
2019
(continued)
The House in Committee of the Whole (Section B) on Bill 33; J. Isaacs in the chair.
The committee met at 1:37 p.m.
On section 1 (continued).
S. Bond: I appreciate the opportunity to continue asking questions. We had started a discussion about section 1 after a fairly lengthy discussion around the cooperative capital markets regulator. So we’re back to the actual bill, the changes taking place in British Columbia. We were talking about the transition to a new responsibility for the B.C. Securities Commission when we look at the issue of benchmarks and benchmarking.
Perhaps the minister can tell us: are benchmarks administered individually or in conjunction with the securities that they affect?
Hon. C. James: The rule isn’t complete yet. I just want to make sure that we talk about that. I know we talked about it before lunch. But for those who are catching up, the rule isn’t complete yet. We do expect that it’ll be in relation to securities and derivatives.
S. Bond: Can the minister just clarify or confirm that the B.C. Securities Commission will be regulating benchmark administrators — all of them or just those that operate in B.C.?
Hon. C. James: It’ll be people who operate in British Columbia.
Sections 1 and 2 approved.
On section 3.
M. Lee: I wanted to ask about a special relationship, as defined under this section, which is amending section 3 of the Securities Act. The proposed amendment under section 3 of the bill would interpose the words “considering or” before “proposing.” Could I ask the purpose for that addition?
Hon. C. James: This is in response to the Donald case, which occurred in Ontario. This is not a new provision for British Columbia. This is a provision…. Again, I talked to the critic about what are catch-up provisions and what are new provisions. This is already in place in Ontario. This is already in place in Alberta. It’s ensuring that “proposing” should include “considering.” That was an issue that came up in the court case. So this is the clarifying to make sure that it’s clear.
M. Lee: How is the commission proposed to enforce the word “considering”?
Hon. C. James: Like other investigations or other processes, it would be fact-based and evidence-based.
M. Lee: Is there any concern regarding the nature of the word “considering”? When we’re talking about considering, we’re talking about companies that are, certainly, considering their strategic options, whether it’s through merger and acquisition transactions or other corporate-type transactions. So by enlarging the scope of a special relationship, is there any concern in terms of the nature of the scope of those words?
Hon. C. James: I think the important context in all of this is that the definition is being used for the insider-trading provisions. So it is not…. I would suggest the broader concern about the broader capture isn’t necessarily a challenge in this section, because this would appropriately capture people connected to this work because it’s related to the insider-trading provisions.
M. Lee: In terms of the application of that and the context of section 57.2, as well as 136 of the Securities Act, can the minister give an example in terms of how professionals, like accounting professionals, investing banking professionals and securities lawyers themselves, would be caught within the nature of this? By way of consideration, in terms of when third-party professionals like that provide input and advice to a board of directors or a management team, how does this operative word of “considering” now play into the restrictions around those professionals?
Hon. C. James: In fact, what this would do is ensure that the professionals that the member is talking about, the third-party professionals, would be prohibited from trading on the material information that they gained as a result of their profession. In fact, it would prohibit that material from being traded inappropriately.
M. Lee: The extension of, first, proposing and, now, considering does…. When you’re in the course of discussions as to what a company might do, there are many options that could be considered.
When we get to a material change or a material fact or a material decision by a company, when we’re that far out away from it, it can be quite challenging for those who are operating in that environment, appreciating that, certainly, when individuals are involved with undisclosed material information or material fact, they should not be trading on that information. The extension around “special relationship” is intended to be a broader sweep around that.
The consideration from a policy point of view would be: to what degree are we, as an enforcement authority, looking to enforce what is now a broader provision? Perhaps I can come back to that at one point in terms of fact.
When there’s consideration of possibilities, what is the factual circumstance that the commission will be looking at in interpreting the enforcement of this provision?
Hon. C. James: I think the important factor in all of this would be the review of the entire transaction. So the Securities Commission, if they’re enforcing this, wouldn’t be looking at one piece; they’d be looking at the entire transaction. They’d be making an assessment on the individual. They’d be making an assessment on their role. They’d be making an assessment on their relationship, the time, the information that was received, what kind of information was received, how the information was received.
I think that’s the important context in all of this. It’s not looking at one piece. In fact, we’ll be looking at the entire transaction as part of any kind of review.
Sections 3 to 6 inclusive approved.
On section 7.
M. Lee: On this particular section, there are a number of delegated powers that are being amended here. Could I ask if the minister could please provide an overview of the changes in the section and explain, as well, the purposes for those changes?
Hon. C. James: I think it’s important to note…. I’m glad the member asked the question, because there’s, in fact only one new power added to this list of investigations of property and financial affairs. All the other changes in the list, or all the other changes that are in the section, are a result of sections being renumbered.
In fact, there is only one new power, and that power is to prohibit the commission from delegating to the executive director the power to appoint a person to make an investigation of a person’s property and financial affairs. That’s like other investigative powers. It can’t be delegated. That’s the new piece in this section. All the others are simply renumbering.
Sections 7 to 9 inclusive approved.
On section 10.
S. Cadieux: Thank you, Minister and staff, for being here for what will probably be a lengthy process.
This section, I believe, is one of the sections relating to whistle-blowers, if I am correct. The minister can correct me if I’m wrong. But could the minister just briefly explain this section? What is it that this section is designed to do? How is it different than what is in place today?
Hon. C. James: The member is quite correct. This piece does have a relationship to the whistle-blower. There are other pieces in here as well, so I’ll just run through each of them.
It provides the opportunity for the commission to use the restricted surplus to create a whistle-blower program — again, as we talked about in the second reading, one of those tools to be able to capture more revenue to be able to return to victims. It allows the restricted surplus to be used for enforcement and collections — again, an opportunity to be able to capture more money to be able to be returned. It provides the opportunity to be able to return those moneys through a receiver, looking at the most efficient ways to be able to get the resources and be able to return those moneys to victims.
S. Cadieux: Fine use is expanded rather broadly in the section to include benefitting a third party. What sort of limitations would be placed on the use of that revenue amount or structure?
Hon. C. James: There are regulatory powers, reg-making powers, for the government to be able to step in. If they feel that, for example, money is being used in different purposes, then the opportunity is there. The reg-making powers come later in the section. But they are there within, applying to the section, to make sure that there are checks and balances on where the dollars are being used.
S. Cadieux: The minister referenced that this is adding the ability to use restricted surplus for a whistle-blower program and enforcement and collections — and as a receiver.
Am I to understand, then, that there are other practical applications that could be envisioned under this section, other than those? Or is third party limited to the whistle-blower program?
Hon. C. James: This does provide flexibility. If there are other programs that the Securities Commission feels would be helpful — in enforcement, for example — they would have the ability to do that. That’s why the reg-making powers are there, so that government has the ability to be able to ensure, through that check and balance, that it’s appropriate and that the dollars are being used appropriately.
S. Cadieux: Could the minister explain or provide an example of another enforcement opportunity that could be contemplated?
Hon. C. James: The focus really is on collections and ensuring that the Securities Commission can collect as much money back for victims as possible. One of the examples would be that often it’s difficult being able to collect back and ensure that all the assets are being counted and reviewed.
An example would be third-party help. Perhaps third-party help might be needed to be able to look at ensuring the collection occurs and ensuring the assets are there and counted and collected. That would be an example of something the Securities Commission may want to look at in order to be able to collect the fines.
This is modelled after Ontario’s examples in their act. As we’ve talked about, the fraudsters often find ways to be able to both hide money and be able to keep it from detection, and there may be third parties who could assist in being able to address that detection issue. That might be an example.
S. Cadieux: Thanks, Minister. Is compensation to victims contemplated as a third-party benefit outside of the obligation that exists today for the Securities Commission to return recovered proceeds to victims?
Hon. C. James: It’s an important piece. I’m glad the member asked, because this is an important clarification that is the context for this discussion, which is that the money goes back to victims first. That’s the primary purpose. These restricted surpluses we’re talking about are only after the victims’ money is there. That’s the first piece. I think it’s an important context in all of these other pieces.
S. Cadieux: One more then, again, for clarity, Minister.
This section and the abilities provided by the section through subsequent regulation to spend the restricted surpluses from fine revenue on these programs…. Is that the only revenue that we’ll use to fund these programs, or is it anticipated that fees will increase to also cover these programs?
Hon. C. James: There may be operational dollars that the Securities Commission utilizes for some of this ongoing work, because it is the purpose of the Securities Commission. So there may be ongoing dollars currently that are used within operating budgets. These provide an opportunity to be able to use the restricted surplus after victims are paid, to be able to utilize it for these additional pieces as well.
Section 10 approved.
On section 11.
S. Bond: Not a lengthy section, but I’m wondering if the minister can explain the need to move from a regulation-making power to a specific direction. This basically creates a specific requirement to publish a notice. What was the reason for moving from a reg-making power to a specific requirement?
Hon. C. James: We don’t often have a discussion about getting rid of regulations and putting something in the act. Usually it’s the other way around.
The regulation was much more prescriptive, so this provides, in fact, a better opportunity for the Securities Commission to administer the claims process. It goes from a time period of three years in the regulation to three months. Again, it gives a faster opportunity to be able to put the notice out, to be able to get the money back to victims, ultimately, which is what this section is about.
S. Bond: The other item that’s included there is what I assume is enabling power to allow the commission to retain money in different circumstances. Is that simply a reflection of the previous conversation that we had about where money can be spent? This talks about how the commission…. The legislation identifies that the commission “may retain any money not payable,” and it revises those circumstances. Is this enabling the previous discussion that we had?
Hon. C. James: The member is quite correct. This does relate to the previous discussion we had. It provides the opportunity, after victims have been paid, to be able to look at those other sections that we just talked about, but it also, again, provides the timeline. That’s the other piece that has changed. It incorporates the timeline change with the act and the regulation.
Sections 11 to 14 inclusive approved.
On section 15.
S. Bond: This section actually talks about demands for information, and it can be from trade repositories, information processors, benchmark administrators. I’m wondering if the minister can sort of flesh that out a little bit for us.
What is the range of agencies that the minister envisions that the B.C. Securities Commission will be engaging with? Basically, how large are they and how distant? How often would the expectation to engage materialize? Again, maybe a bit more of a sense of: what is the scope of the work that the B.C. Securities Commission will undertake — with whom, how far away and how often?
Hon. C. James: This expands the requirement to provide information, upon request, to the new regulated entities. The list would include clearing agencies, trade repositories, information processors and benchmark administrators. Those are now the new regulated entities. Therefore, this will include them in this process to provide information. This, again, relates to the implementation that we talked about earlier about benchmarks, derivatives, and is connected to that.
S. Bond: Thank you very much for that response, Minister. Another important element of this will be compliance. Perhaps the minister could outline for us what will be done to ensure that there is prompt compliance with the information requests. These could, potentially, be multinational benchmarks, large benchmarks. From that perspective, what will be done to ensure that there is compliance?
Hon. C. James: With this recognition, they’re permitted, then, to participate in our market. If they get recognition through this process — as I talked about, new regulated entities…. If they’re recognized, they can participate in the market. With that comes the requirement to follow the law, basically — to follow the rules that are in place within the B.C. securities market, to follow those laws.
If they don’t, the requirement would be the same as for anyone else who participates in securities. They could be disbanded. I mean, there are all kinds of penalties that would occur if somebody didn’t follow the requirements. That would be the process. Like anyone else who participates, once you participate, you’re required to follow the law. If you don’t follow the law, there are consequences to that.
S. Bond: Would the minister describe this as a catch-up provision?
Hon. C. James: Yes. These are in place in other securities acts.
S. Bond: Is there a consistency to other jurisdictions? If this is catch-up, is it outlined similarly in other jurisdictions across the country? Did we have a conversation about how it’s done, did we look at a particular model, or is it done pretty much the same way across the country?
Hon. C. James: Yes, there’s harmonization.
S. Bond: From the perspective of the B.C. Securities Commission, obviously, there’s…. While the government is going to provide a number of new tools to the B.C. Securities Commission, perhaps the minister can give us a sense of: what is the scope of engagement that is anticipated with these new organizations?
You know, there has been an expressed concern about resources, the utilization of them. There are a lot of new expectations for the B.C. Securities Commission as a result of these legislative changes. Could the minister just perhaps expand a little bit on it? What is the anticipated scope and the allocation of resources that might be anticipated with this new expectation?
Hon. C. James: Currently a number of these new regulated entities are being overseen by Ontario, and we don’t expect that to shift. So we aren’t seeing a flood; we’re not expecting a flood.
Obviously, this is something we’ll have to watch as we go along, but because many of these operate in Ontario and are larger areas in Ontario, they’re being overseen right now by that province, and we don’t expect that to change.
Sections 15 to 19 inclusive approved.
On section 20.
M. Lee: Perhaps, Madam Chair, before we proceed further, I’d just like to ask the Minister of Finance, give her the opportunity, to introduce the guest who’s seated next to her as the chair of the commission.
Hon. C. James: Just so people…. If they’ve just tuned in, I’m not ignoring the other staff sitting with me. I did introduce them this morning. I don’t want people to think we’re ignoring staff. But I have Brenda Leong, the CEO and chair of the B.C. Securities Commission, who’s also joined us for the discussion, along with Joey and Tim.
M. Lee: On section 20, in terms of the changes to section 50 of the Securities Act, if I could ask the minister the purpose for some of the changes. Well, let’s just start with the introductory words, in terms of the deletion of the words “while engaging in investor relations activities or with the intention of effecting a trade in a security.”
Hon. C. James: The purpose of this is to in fact broaden the scope of the opportunity for investigation, rather than just limit it to “while engaging in investor relations activities.”
“Investor relations activities” is repealed later in this act, the definition, and replaced by “promotional activities.” This is to broaden it to include highly promotional abusive activities that may be taking place — to allow that to be part of the investigation. So a broader scope rather than a very narrow scope to recognize the changes that criminals utilize, or people utilize, when they want to be able to get money from victims.
M. Lee: I appreciate that that is the intention. In contrast, when we look at the existing subsection 50(1)(b), the wording: “give an undertaking relating to the future value or price of the security….” That looks like the corresponding change in the amendment would be under sub (c), although I could be corrected on that: “while engaged in a promotional activity, represent the future value or price of a security or derivative.”
Is the use of the term “while engaged in a promotional activity” intended to be limiting or broadening in effect?
Hon. C. James: That’s, in fact, broadening.
M. Lee: Again, when I look at sub (c), there are no introductory words relating to any representation that a security will be listed or posted for trading.
If, again, the corresponding change is in sub (d), it does have the words “while engaged in a promotional activity.” So does that not, in itself, actually limit the interpretation of the existing subsection (c)?
Hon. C. James: In fact, the definition of “promotional activities” is broader than “investor relations activities.” Therefore, it broadens the section.
M. Lee: Perhaps I could ask the minister to describe — I know we’ll pick it up later in the review of this act, but perhaps at this juncture — what’s intended by the term “promotional activity.”
Hon. C. James: This is back at section 1, where you have definitions. So the investor relations activity had to be done “by or on behalf of an issuer.” The promotional activities means anyone. So it’s a broader definition — anyone making statements or making claims.
This is meant to be broader so it will capture things like social media, in particular, where now people will utilize social media to be able to make statements, to promote abusive promotional activities. That’s why the definition is now broader, where it doesn’t just limit it to “by and on behalf of an issuer” but, in fact, relates to anyone making those statements or claims. And, as I said, it will capture the mainly social media area, where it’s really expanded.
M. Lee: It’s an important topic that perhaps we can just discuss here. I recognize the growth of what’s happening on social media and through other Internet channels. What’s the commission’s approach, then, in terms of requirements around regulating that sphere of activity? Obviously, in terms of when someone is doing that on behalf of an issuer, there are registration requirements. So what’s the equivalent here for a promotional activity?
The Chair: Minister.
Hon. C. James: Thank you very much, Chair, and thank you for your time here.
Just to be clear, there aren’t requirements for registration now for investor relation activity. So it’s not that there were requirements and there won’t be requirements now. There aren’t requirements across the board.
[R. Chouhan in the chair.]
It does provide the Securities Commission with a broader net to be able to go after these kinds of abusive activities that occur. It will allow rules to be made. So rules could be made around conflict of interest, for example — somebody promoting something where there’s a conflict of interest that hasn’t been disclosed or hasn’t been identified. It just provides the broader base to be able to go after people through the Securities Commission.
M. Lee: When I look at the definition of “promotional activity,” though, it doesn’t necessarily tie back to the issuer or even a holder of securities. So that’s the reason I was raising the question.
I appreciate that in terms of investor relation activity, which is the lead-in language that has been deleted in this bill, the shift is to broaden the effect to promotional activity. That, directionally, would suggest that the commission is looking to regulate other activities which go beyond investor relations activities. I think we’ve had that discussion.
I’m asking, perhaps, again, if the minister could give the House a better sense as to ways in which the commission will be attempting to regulate promotional activities which are not necessarily tied back to the issuer itself or a holder of securities of that issuer.
Hon. C. James: Maybe I can just give an example. So there’s a promotional abusive activity that is spotted by the Securities Commission, or someone complains about it, or it’s being investigated. Previously, that promotional activity would have needed to be done by or on behalf of an issuer, as the member has identified in the descriptions.
This might be somebody doing it for personal gain. They might not be doing it, in fact, by or on behalf of an issuer. They might be trying to scam people themselves. This gives an ability for the Securities Commission, with the broader capture, to be able to go after those individuals.
M. Lee: Would the minister share any indication as to how prevalent — how many examples — or what the impact of this sort of activity is currently, as monitored, tracked, by the commission?
Hon. C. James: Certainly, the compliance team is seeing this on a broad basis, and they’re seeing it on a recurring basis. We don’t have numbers with us. But certainly, they are seeing it on a recurring basis, which is a worry and a concern — and the importance of acting and bringing forward these changes to be able to capture this.
Sections 20 and 21 approved.
On section 22.
S. Bond: Section 22 talks about, obviously, trying to prevent actions that are deceptive or misleading about a person’s identity or affiliation with another person. Could the minister perhaps describe for us how that will be enforced? Now it has a much broader scope when it comes to, in essence, misrepresentation. Could the minister give us a sense of how this provision will be enforced?
Hon. C. James: This is one of those sections. We’ve talked about various sections: some that are catch-up, some that are new and some that are modernizing the act. This is one of those sections that are about modernizing the act and modernizing the language. It’s not about taking away the specificity. It’s about, in fact, modernizing it. There are many ways to utilize someone’s identity broader than letterheads and forms and signs today. Basically, it’s modernizing the language to ensure that it captures a more modern approach to utilizing someone’s identity.
S. Bond: It doesn’t expand power or authority, or it simply doesn’t capture a new concept. What it’s doing is looking at the new world that we live in and trying to find ways…. Whenever there’s a list, there’s always a risk — right? — of what we’ve got in and what we haven’t. That’s one of the reasons we often find ourselves back in the Legislature. It’s exactly that reason. So this simply captures some of the other methods that that misrepresentation might take place. It’s just trying to capture — be more fulsome — in that list?
Hon. C. James: Yes, that’s correct. It’s basically looking at the policy, what the policy is, and better defining that in today’s language, rather than limiting it to letterheads and forms, which probably, in the day the legislation was written, may have been the only way to be able to utilize someone’s identity. As we know, unfortunately, there are many more ways now that that can occur.
Sections 22 to 24 inclusive approved.
On section 25.
S. Bond: It’s a section that deals with how we will attempt to prohibit people from committing fraud. I’m thinking that’s probably a place where, as we discussed yesterday, it’s really not a partisan issue.
Having said that, perhaps the minister could outline for us what types of fraud related to benchmarks the commission will be attempting to deal with as a result of the addition of this section.
Hon. C. James: I think that the best descriptors probably would be misleading, as one type of fraud, and manipulation of the data, for example, for personal gain. Those are the kinds of types of fraud that would be related to benchmarks.
S. Bond: Can the minister describe for us what a false benchmark looks like?
Hon. C. James: This probably isn’t technical language, but it basically would be a benchmark built on false data, on false information, on not-accurate information as it was portrayed.
S. Bond: Would the section that we’re talking about — and the addition and the focus on manipulation and fraud — cover, in any way, indices related to cryptocurrency and other such? We’ve talked about…. In fact, I think it may well have been the chair of the B.C. Securities Commission who talked about some novel approaches in the bill. Does this relate to cryptocurrency or other types of novel financial instruments?
Hon. C. James: I think the best way to describe it would be that it doesn’t preclude it. I think, as the member has pointed out, that we continue to look at how you regulate those kinds of issues — huge challenges and huge issues related to that. But because the definition includes a price, a rate, an index value, it could, in fact, include something like cryptocurrency as a possibility. It doesn’t preclude it.
S. Bond: Perhaps the minister can speak a little bit about the scope of risk that’s associated with fraud related to benchmarks. What is the scope of that risk? I’m assuming that if we’ve had this discussion regarding benchmarks and other things cross-jurisdictionally, we should have a good sense of what that scope of risk looks like. Could the minister describe that for us?
Hon. C. James: Well, I think the scope…. The member talks about scope of risk. I think all of the pieces we’re bringing forward relate to risk and relate to the risks of victims, the risks of support to a good, strong regulatory system and financial system in our province and in our country.
Internationally, we now have regulations around benchmarks, around derivatives. So the biggest risk we face right now is not having those in place. Really, it’s looking at the international examples of where that has happened, LIBOR being the example we’ve talked about where the market was manipulated. That can have a huge impact if we’re talking about it spreading across.
I think the risk really is related to what we have seen globally. We live in a global world now. Certainly a financial world is a global world as well. I think ensuring that we put the protections in place and the regulations in place is really that kind of prevention work, based on fact, that we’ve seen in other jurisdictions where we’ve had these kinds of challenges. I think that’s the work that you’re seeing in this legislation.
Section 25 approved.
On section 26.
M. Lee: We had some of this discussion, of course, when we reviewed section 3 of the bill around special relationship. If I look at the amendments to section 57.2 of the act that are being proposed here, specifically subsection (5), there’s the addition of the words “if a material fact relating to securities of an issuer.”
Can I ask the minister the purpose for adding those words?
Hon. C. James: “Material fact” is there in both. It’s in the section being added, but it’s also in the previous ones. Maybe I missed it. I didn’t see a change there.
It has been reworded, basically, just to modernize the language and to connect with other acts and the way the language is used. They both talk about a material fact or a material change in both section 5s — both the section being removed and the section being added.
M. Lee: Yes, I appreciate that both sections, the current and the proposed, refer to the fact of material change. I was just referring to the fact that between the words “material fact” and “material change” in the existing sub 5 of 57.2, the proposed changes would add new words which would specify that the material fact relates to securities of an issuer, as opposed to, under the current act, the material fact — arguably, depending on how you read those words — does not necessarily spell out “relating to securities of an issuer.”
Hon. C. James: Thank you, Member, for that clarification. Basically, this is just clarification. It’s just ensuring that it’s related to securities. There’s no change in the intent or the direction. It’s basically clarifying it.
M. Lee: Just because we’re on this point. “Material fact,” of course, is a fairly central use of the term and significant, as opposed to “material,” in the course of this particular section, as they say. But “material fact,” though, the definition itself, does relate to a security. So I’m curious still as to why it’s needed to add those words in. Is that for extra emphasis? Or is there some additional purpose or intention here for those words?
Hon. C. James: Thanks to the member. The reason that it’s looking at clarification is that if you read the old 5, subsection (5), it talks about material fact being related to an issuer, which isn’t as clear. It should actually be speaking specifically to securities, so that’s why you see the change. Instead of saying “with respect to an issuer,” it’s “relating to securities of an issuer,” just to make it clear.
M. Lee: There’s a lot that turns on that distinction. So just to ask the minister, as she is conferring with her staff there: does the commission or staff have any concern regarding that change in emphasis where a material fact is specifically defined to be relating to the securities of the issuer versus the issuer itself?
Hon. C. James: No. Staff obviously would have raised that concern if it was a concern before the legislation came forward. There’s no substantive change here. This is simply, again, clarifying the language.
Sections 26 to 29 inclusive approved.
On section 30.
M. Lee: Looking at the amendment to section 57.7 of the act, in the proposed wording of this bill, the change in the period for how long a record must be kept has been revised. Can the minister please explain to the House the purpose for that change?
Hon. C. James: The time period change basically harmonizes it with IIROC.
Sections 30 and 31 approved.
On section 32.
S. Cadieux: This section is adding disclosure requirements for prescribed derivatives and regulations for filings. What sorts of transactions or actions is the province attempting to restrict with respect to over-the-counter derivatives?
Hon. C. James: There currently aren’t any disclosure documents for derivatives. What this provides is an opportunity for the framework so that if the Securities Commission decides that there are documents that they may want disclosed — similar to a prospectus, for example, for securities — this would provide the opportunity for that to occur.
S. Cadieux: Is there a volume in trade in OTC derivatives in B.C. currently, and is it monitored? Is there a volume of trading on OTC derivatives currently in the province? What is that volume, and is it monitored?
Hon. C. James: We don’t know the volume right now. Yes, they are trading in British Columbia. We don’t know the volume. I think the member has described one of the many reasons that it’s important to look at regulations and to look at a framework — to start being able to gather that kind of data and to know what’s going on in the market out there. That’s exactly what this will provide, once the regulatory framework is in place.
S. Cadieux: Thank you. I assumed as much.
I do understand that this is part of the sort of catch-up sections of the act that the minister is hoping to bring us up in line with the rest of the country and in line with what is actually occurring in the marketplace.
Does the minister expect any change in volume in derivatives trading as a result of the regulation and the scheme to regulate? If so, what kind of change would be anticipated?
Hon. C. James: No, it’s not expected at this point that we’ll see any change. I think, again, we’ll be able to monitor it, and we’ll actually have better data to be able to keep track. But we don’t expect to see a change.
S. Cadieux: Obviously, I understand that we’re looking to regulate something that we know is happening. It happens in other places.We’re trying to catch up, with our regulation, to the rest of the country in this regard.
Does the minister know? Are there problems in this sector, in this aspect of securities in B.C.? Or are we strictly doing this to have the same regulatory framework as the rest of the country or to catch up or because we anticipate that there could be a problem in the future? Or have we seen something that we are now looking to have the ability to go after?
Hon. C. James: This is both prevention and learning from experiences in other jurisdictions. So we’re not seeing a particular problem. We haven’t identified a particular problem in British Columbia. Certainly, the financial crisis was, I think, the biggest wake-up call for all jurisdictions internationally.
As part of that, Canada signed on to these regulations as part of the G20. So we signed on as a country, made that commitment that we would put in place greater transparency, that we would put in place the regulations. So really that’s what we’re talking about with these provisions — very similar to other jurisdictions, but both, as I said, from learning from experience in other jurisdictions and also making sure that we do that prevention work and live up to our commitment as part of Canada as well.
S. Bond: I appreciate my colleague and co-critic’s questions.
I wanted to just have the minister, since we have the benefit of having the CEO of the B.C. Securities Commission here…. In the service plan for the BCSC, there is a section that one of the key strategies is implementing a derivatives regime. That’s exactly what we’re talking about here. So in the service plan, it notes that as the minister has pointed out, this work has been ongoing. There was a G20 commitment made by Canada following the 2008 financial crisis.
The comment is made in the report: “To date, we have adopted a number of rules necessary to implement a derivatives regime.” Can the minister give us a sense of…? Obviously, some groundwork has been done here. This is being described as new, that we’re bringing a derivatives regime to British Columbia, but obviously, some work has taken place at the BCSC. Can the minister, perhaps, just give us a sense of what work has been done? How does this section build on that work?
Obviously, one of the key factors is registration of derivatives dealers and advisers. So perhaps the minister can just give us a sense of…. You know, we’re not starting from scratch here, from what we have looked at in terms of the service plan. So maybe just give us a sense of how this aligns and what work has been done.
Hon. C. James: I think, as we discussed with our co-critic, the work around derivatives certainly has been informed by the economic crisis, the financial crisis that occurred. As the member points out, Canada did sign on as part of the G20, so it was important for us to be able to do our part. Alberta, Quebec and Ontario, for example, have already put in place these changes, so we talk again about what’s catch-up and what’s new. It’d be new to B.C., but it’s playing catch-up with some of the other provinces.
Work has been done. No one was waiting for all of the work to be finished. Work has been done through rule-making already, both in Canada as well as here in British Columbia. But the legislative changes putting the legislative framework in place, as other provinces have done, give us a stronger legal authority and the ability to be able to enforce those rules when they’re in place. So it’s the full package — I guess is the best way to describe it — to make sure that the protections are in place and that we’re doing our part as a province in Canada.
S. Bond: Thank you to the minister for that answer. So in essence, the rule-making work has been done that is required to implement the derivatives regime. Is that correct?
Hon. C. James: Work is ongoing. We want to say that all of the rules are in place. That work is ongoing. There’s still a great deal of work to be done.
Section 32 approved.
On section 33.
S. Cadieux: Just for some clarity, could the minister describe the purpose of this section of the act?
Hon. C. James: This, really, is related to making sure that certainty, comfort, is given to the market, that the new regulatory regime isn’t going to impact the regular business of trading, that the regular business of trading will continue. This just ensures there’s greater certainty, as I said, around the transactions on derivatives.
S. Cadieux: This section, then, is not intended to be retroactive? It’s just to provide certainty on go-forward trades under the new regime?
Hon. C. James: It doesn’t materially change anything. The existing laws are the existing laws. Those don’t change. This basically just gives some comfort — I don’t know any better word to use — to the market that as you bring in a new regulatory regime, they still have the regular business of trading and that won’t be impacted. It doesn’t have a cause and effect, I guess, in that regard, to change anything from what’s going on now.
S. Cadieux: Now, I expect that that makes sense, given the fact that derivatives are a particularly sophisticated securities vehicle and not something where we’re likely to see fraud affecting individual investors on a large scale, on any regular basis.
I guess it does raise a question as to, then, what if there is a great fraud? Then a company, an individual or somebody who has entered into a futures contract, for example, for something that is then found to be not compliant is still on the hook for that, so to speak — regardless of whether or not the company that is in non-compliance with the act has done something that could affect the value of that future?
N. Simons: I seek leave from the House to make an introduction.
Leave granted.
Introductions by Members
N. Simons: I just want to introduce the students from St. Thomas Aquinas School, here visiting the Legislature.
They didn’t pick the most exciting moment to come here to listen to the debate on Bill 33. I don’t mean any insult to the Minister of Finance or to the critics, but I was just worried that this would be the impression.
This is like a hockey game where both teams are on either side of the ice. They just pass it — really long passes, all the way up — and then they pass it all the way back. When you come at question period, we’re all into the corners with our elbows up.
Welcome to the Legislature.
The Chair: Only the member for Powell River–Sunshine Coast can make that kind of introduction. Thank you so much.
Welcome.
Debate Continued
Hon. C. James: Chair, I’m going have to get up so we can keep the member from Sunshine Coast down.
Welcome.
Again, to kind of set the context, the member asked about fraud and if there was fraud there, if there was a challenge. A party would continue to have all their rights, with respect to the counterparty, under the contract. If fraud were found, then they’d still have remedies under contract law. Contract law would still be in place, and that would still apply. It doesn’t need to be identified, but that would still apply in a case such as this.
Sections 33 and 34 approved.
On section 35.
S. Bond: I know that our colleague across the way knows that this is an important part of the legislative process. While some of us may enjoy getting our elbows up, we’re even getting heckled by our own members for how scintillating this discussion is.
Section 34 is consequential, but on section 35, I just wondered if the minister could describe for us why there’s the change, which allows the executive director to exercise the same power as the commission. It’s an amendment. I’m just wondering if the administrator could explain why that was necessary.
Hon. C. James: This really is about efficiency. A lot of these applications come in, so providing the opportunity for the executive director to have the same powers as the commission provides for administrative efficiencies.
Section 35 approved.
On section 36.
S. Cadieux: This section has increased the scope of considerations and establishes a hearing requirement for which a stop order can be issued for the trading of securities, including now specified derivatives. With respect to derivatives, the act is amended to contemplate the regulation of bespoke and OTC derivatives. Previously the act was limited, obviously, to securities provided by an issuer.
Can the minister provide an example or a list of circumstances in which the regulator would stop the trading of a derivative?
Hon. C. James: I think the example would be: as happens with securities, there might be an unexplained price fluctuation, a change in value that is unexplained and that is odd. That might be an example for the member to review.
Sections 36 to 39 inclusive approved.
On section 40.
M. Lee: Section 40 proposes to increase the powers of the commission in the event of a non-compliance and takeover bid context.
Could I ask the minister the purpose for the expanded scope of powers and why the tools are needed in order to intervene?
Hon. C. James: As the member pointed out, this previously only applied to takeover bids. This expands it to business combinations.
Then the member asked why the changes were being made. These changes will, in fact, allow interested parties to apply directly to the commission for orders to be made or for broader remedies. Previously, individuals or interested parties would have to actually go through the court process for that to occur. This will provide efficiencies. Obviously, it provides savings, if someone is having to pay for the court system, for them to be able to access the kinds of remedies that they’re looking for.
M. Lee: In terms of the own assessment of that, it’s been commented that with respect to the matter of the Eco Oro Minerals Corp. and Toronto Stock Exchange decision of the OSC back in June of 2017, many of the exercises of powers of a commission intervening over the jurisdiction of a stock exchange were necessary, in the view of the OSC, in that instance.
Can the minister comment on the nature of the additional powers that are being provided in section 114 — as amended through this bill, proposed — in view of that decision?
Hon. C. James: I think through this section what we’ve attempted to do is to, in fact, be transparent. Given the review and the case that the member mentioned, I think the difference is that we’ve actually identified or we’ve described the types of transactions and the remedies available, in an effort to be transparent and to provide that transparency, which we think is the right direction to go.
M. Lee: Just to walk through this, then, so that we’re talking about the same things, when we look at the new list of powers given to the commission under this act, the first sections, (a) through (f), are similar to (a) through (e) in the existing act. Though I suppose that we have…. Probably (c), in terms of business combination, is also new. That’s the extension beyond a takeover bid. So sub (c) of the new section is new, plus (g) through (m).
In thinking about the answer the minister just responded on, these are presumably powers the commission believes are necessary to spell out that the commission does not currently have. Is that correct?
[J. Isaacs in the chair.]
Hon. C. James: New provisions in the act, not necessarily new powers, I think is the best way to describe it, because the commission has currently very broad powers to set rules or to put orders in place. But we felt it was important, because of transparency, to provide and describe examples of the types of remedies and transactions.
What you see listed here are examples of areas where the commission could set rules and orders to, again, look at how we increase that transparency. They’re not necessarily new powers, because the broad powers are already there for the commission, but they give examples of the types of transactions and remedies to be able to be more transparent in the act.
M. Lee: Recognizing that in the Eco Oro Minerals decision, there was certainly challenge by the parties to the commission’s authority to intervene over the Toronto Stock Exchange, has there been a similar level of consultation or consideration with the Ontario Securities Commission about identifying this further list of powers that a commission can exercise? Is the OSC also, and other commissions, in the context of the cooperative capital markets work that’s going on in terms of the Uniform Securities Legislation…? Is there a similar positioning going on to frame out these powers?
Hon. C. James: I’m not sure whether the member was here when we had the discussion about the fact we that briefed Ontario on the changes that are coming and the work that’s in this legislation. We certainly don’t anticipate that these, in fact, caused any kind of hindrance to the cooperative capital work that is going on. In fact, as we’ve talked about, it could provide us an opportunity to move closer in many ways.
M. Lee: Thank you, Minister. I appreciate…. I was present when you gave that response to our Finance co-critic. Just to further that point then, in the context of regulation of takeover bids, issuer bids, business combinations and related party transactions, the Ontario Securities Commission certainly has demonstrated a track record of expertise on transactions of that nature, as does the B.C. Securities Commission.
When it comes to the principal stock exchange in this country, the TSX, how does the minister see, going further in the future, under a cooperative capital markets jurisdiction — the imposition of the powers under this section, 114, on an issuer that is based in B.C., a reporting issuer in British Columbia, yet of course may well have its principal trading through the Toronto Stock Exchange? How will the British Columbia Securities Commission impose these additional powers in the context of a national securities regulator?
Hon. C. James: I think the first piece is if we had the cooperative capital markets in place, we would have a common standard, and we wouldn’t be looking at…. I’m presuming there probably would be a transition time, but I’m guessing we would be looking at a common standard, so you wouldn’t have the issue. But I think, given the expectation of what will occur, it’s expected that you would still, for example, have the cooperative capital tribunal in British Columbia. It would still be heard in British Columbia.
Each of the provinces would still have that process to go through. Again, we can speculate, but I think, currently, as I said, if we were looking at a cooperative capital market, you would have a common standard in place. So it wouldn’t be an issue.
M. Lee: Just to ask the question one more time in a different way. The minister is satisfied at this time that the additional imposition of these powers by this commission will not hinder the further harmonization of a common set of rules, as the minister just described, for the cooperative capital markets regulator.
Hon. C. James: The member is correct.
M. Lee: In the interim period, as we covered at the outset of this committee stage, the continued efforts in…. I use the word “drifting” — drifting only in the sense that there is no agreed-to timeline. But in any event, in the interim period while that work completes, what will be the jurisdiction as to how the B.C. Securities Commission will exercise its powers, in the context of the Toronto Stock Exchange, to deal with an issue arising from a takeover bid that requires appropriate level of shareholder approval?
We’ve had instances even recently where there have been announcements of bids to take out the remaining 49 percent of a major forestry company in this province. That’s an example of a complex business accommodation transaction, but in any event, we need to continue to ensure that there’s a right level of shareholder approval, and that’s where we get into an issue between the stock exchange ensuring that that is the case when they see a change-in-control type of transaction.
What I’m asking the minister is: in the interim, does the commission, under her purview, see any challenge with exercising these further powers over top of the Toronto Stock Exchange?
Hon. C. James: I think that just for clarification, this section in this part of our act doesn’t take away powers from individuals or from companies still going ahead through the TSX or looking at other avenues. This just provides an opportunity, through British Columbia, through our act — another avenue, for example — for rules or for remedies. It doesn’t derogate powers from the TSX. It doesn’t take away the ability for people to utilize that process as well. I think that’s the important piece in all of this.
Perhaps when we finish this exchange, I’d just suggest we take a five-minute recess.
The Chair: Okay. We’ll recess for five minutes.
The committee recessed from 3:46 p.m. to 3:57 p.m.
[J. Isaacs in the chair.]
M. Lee: I appreciate the response from the minister. Certainly, the expectation would be, of course, that a person or shareholder or other actor can apply for relief, and concerns, to the commission. The TSX rules still need to be complied with. There’s no change on that. I appreciate that point.
Really, it’s the greater powers that are being provided under this bill to the B.C. Securities Commission that are of interest here. Particularly in light of…. As we talked about from the outset, it’s a matter of where this government chooses to spend the resources of staff and the commission and otherwise, in terms of the effort on this bill, in the face of the opportunity to continue to conclude on the cooperative capital markets regulator.
In that context, in the interim, without that, there’s, in the eyes of this government, a continued need to give additional powers and to elevate and make that transparent to the commission. In the course of that, I’d like to ask: what level of further resources would the commission require to exercise this level of power?
Hon. C. James: We don’t expect, in these kinds of cases, that there will be a need for greater resources. We don’t anticipate a flood. There may be some more applications. Both parties are usually represented by lawyers. So we don’t expect a huge increase in resources necessary for these changes.
Sections 40 and 41 approved.
On section 42.
M. Lee: On this particular section, this changes subsections 131(6) and (7) of the current act. If I could ask, first of all, to the minister — if she could just walk us through the nature of these changes.
Hon. C. James: This is an interesting piece. The section reads, as the member will know, that you cannot present a prospectus and misrepresent the prospectus. That’s in the current system, and that continues on in this section. Currently an individual can use the defence that they, in fact, believed the prospectus to be true when they put it in. That’s a defence that they could use previously and that they’ll be able to use after this amendment as well.
Currently the Securities Commission, if they were going through the investigation, would have to prove the person wrong. So the onus was on the Securities Commission to be able to prove that the person was wrong when they said they believed it to be true.
The change will be that the onus will now be on the individual. They will still be able to bring forward the defence that they believed the prospectus to be true. That doesn’t change with the amendments. The change is that the onus will now be on the individual rather than the Securities Commission to prove that it wasn’t true.
This is in the cooperatives act. This is in the CMA, currently. Alberta has these changes in their act as well.
M. Lee: What other jurisdictions have this provision?
Hon. C. James: Alberta has this provision as well.
M. Lee: Meaning that none of the others do.
Hon. C. James: In fact, if we move to a cooperatives capital market, this would be the common standard across the country, because it’s in the CMA now as well.
M. Lee: This is where the struggle is, still, in terms of where British Columbia is sitting with the cooperative capital markets regulator. We’ve talked from the outset about the importance to put that in place, with a set timeline and commitment of resources that weren’t being focused on this bill as opposed to that effort.
This is yet another example where in the intervening period…. We’re very supportive, of course. You’ve heard members on this side of the House speak to this — of ensuring that there is that cooperative capital markets regulator in place.
In the interim, we have a situation where this jurisdiction is adopting further rules. That is in advance of other jurisdictions in this country, which, depending on which section of the bill we’re talking about, can play in different ways. So in the context of prospectus liability, when a company is looking at jurisdictions, and they’re looking at jurisdictions in which to operate and offer securities, this will have an impact.
Has the Securities Commission done an assessment on new issuers listing or becoming reporting issuers in this province and the impact of a section like this?
Hon. C. James: I want to just touch, for a minute, on the premise that the member is putting forward around whether you move ahead, whether you lead, whether you provide the opportunity for leadership. I mean, if we waited — and I think it’s chicken or egg — for the work to be completed, there are still provinces that are not part of the capital market. Would you wait? Would the member suggest we wait until other provinces are also on board?
I think it’s important to note that we continue the work, as we talked about at the beginning of this debate on this legislation. We continue the work. We find opportunities. As I said, this is included in the CMA, so in fact it’s already, from that perspective, following the direction. But we’re also going to make sure that we do what we need to do here in British Columbia to be able to ensure that we capture the individuals who are putting forward and misrepresenting a prospectus.
I do not believe that this, in fact, will affect issuers looking for British Columbia, because unless they’re misrepresenting their prospectus, unless they’re bringing forward a prospectus that is not accurate and truthful, this has no impact on individuals — no impact whatsoever.
That’s the issue here. I don’t believe there is a conflict. I understand that the member wants to ensure that we’re continuing the work, and we’ve had that discussion at the beginning of this debate. We are continuing that work as a province. We are continuing to play a role there. We are continuing to look at the cooperatives market. But that doesn’t mean, as I said, that we are going to stop doing everything we can to ensure that we are capturing as much revenue as we can from people who are benefiting from the proceeds of crime and that we’re utilizing those resources for victims here in British Columbia.
M. Lee: I appreciate that we haven’t actually gone into the detail of the section, but I think it’s important to frame the importance of the section itself first, in the context of the overall discussion. To be specific, the jurisdiction I’m concerned about is not Quebec; it’s Ontario. Quebec may never join the cooperative capital markets regulatory authority, but Ontario is the one that is the co-lead. So what is the status of Ontario’s view of this particular change under the CMA?
Hon. C. James: Well, in fact, Ontario is again a lead around the cooperative capital market. This is part of the CMA, so there’s agreement on this piece.
M. Lee: Is Ontario, in the interim, prior to the implementation of the CMA, introducing similar changes?
Hon. C. James: As I said earlier in the debate, in fact, Ontario has made changes every single year to their Securities Act. They continue to make changes to their Securities Act.
M. Lee: To the minister’s best knowledge and awareness, is Ontario planning to make this change in the current time period — meaning within the year?
Hon. C. James: Changes to the Securities Act are part of the budget process in Ontario, so that’s a process that obviously is confidential. We’re not aware whether they are bringing forward this specific change or not, but as I’ve mentioned, they have continued to make changes over the years to their Securities Act.
M. Lee: Well, certainly, this is where, again, for all provinces that are participating in this exercise to put in place a cooperative capital markets regulator, all of the resources that are being spent to amend and update individual securities acts separately from each other…. There may be a common understanding, but we don’t know that yet.
A provision like this…. Could I ask how it is expected that a person will prove what’s required under this section?
Hon. C. James: It would be the individual who is using this defence. They, obviously, are in the best position to be able to determine which information should come forward and which information could be presented, and they would be required to bring evidence forward to show their belief that they did not misrepresent the prospectus.
M. Lee: Can the minister please confirm: for the purpose of a prospectus, what requirement is there for directors of a public company to sign on and accept liability for the document itself?
Hon. C. James: Potentially, every director could be liable.
M. Lee: But there is a requirement for a number of directors to sign the prospectus. What is that requirement?
Hon. C. James: Just so that we don’t stop, we can get that information for the member. We’ll get it while we’re going on to other questions, if the member wishes.
M. Lee: Perhaps I can ask the question another way. In terms of the understanding, just for the purpose of this discussion, under this provision, sub 131(6), what is the universe of persons this provision is intended to capture?
Hon. C. James: This section applies to experts. So it would be reports from experts, opinions from experts and statements by experts in this section.
M. Lee: When we’re talking about, for example, in the context of a 43-101 report, a type of report for a mining property….
If we use that as an example of an expert who is requiring to provide and, where sections of that report are quoted, to demonstrate tenure and reserves and resources numbers as disclosed in the prospectus, the expectation behind this section, then, would be for that expert to prove the statements in the report and also to verify that as the prospectus.
What additional work would be expected of that expert in order to put that engineering firm or the author of the report in a position to stand behind those statements?
Hon. C. James: I think it’s important to…. If you look at (b) in this 6(b), it speaks to “after reasonable investigation, reasonable grounds to believe and did believe that there had been no misrepresentation.” That’s, I believe, the important part in relationship to the question that the member asked, that there has to be reasonable grounds to believe that there has been no misrepresentation.
M. Lee: The minister commented earlier, but just to draw it out a little more. In terms of the reason for the change to put the liability burden on the expert, him or herself, or the firm that stands behind that author…. What is the reason for that change?
Hon. C. James: Just to go back to the discussion we had earlier, it is the individual or the firm or the expert’s defence that we’re talking about here. If they’re using the defence that they believed it to be true, they are in the best position to be able to bring forward that defence, rather than the Securities Commission guessing why they may have misrepresented or may have believed it to be true and proving that they were wrong.
It’s the onus of the individual bringing forward the defence to be able to prove their defence. They’re in the best position to do that, and hence the changes.
M. Lee: Have there been recent cases or incidents where this concern has been brought to the forefront that requires this change?
Hon. C. James: No. No specific cases to point to, but again, this has been part of the discussion, as I mentioned earlier, around cooperative capital markets, around that act and around the province of Alberta as well.
Sections 42 to 51 inclusive approved.
On section 52.
S. Bond: The sections that we’re talking about now relate to investigation and compliance review powers. Obviously, it’s section 52 and then up through section 56, so we’ll ask the questions beginning here in section 52. What the provisions do in these particular sections are increase compliance review and investigation powers of those that are acting on behalf of the B.C. Securities Commission director.
Can the minister describe for us what led to these additions?
Hon. C. James: I know we’ll get into each specific section, but just to give the broad basis, as the member talked about a number of sections here when we look at powers. The first thing these sections do would be modernizing the powers to search, including electronic devices, for example. We talked again about needing to make sure we modernize and deal with that. That’s expanded here.
Expanded powers to find assets. As the member knows, there’ll be sections coming up where we talk about freezing assets. This provides the expanded power to find the assets. It incorporates the new entities, that we talked about earlier in the bill that will now be part of the act, into the compliance review process and powers. It provides some expanded investigatory powers that, again, I think we’ll get into when we get into the other sections. That’s basically the parameters of these sections and the broad purpose behind these sections.
S. Bond: Let’s take a look at section 52, then, for a moment. It talks about appointing additional people. It talks about having to do that in writing. It states specifically: “The executive director or, on the production of the appointment, a person appointed under subsection (1) may do any of the following.” Who else would be appointed to do this work?
Hon. C. James: The most likely additional people would be an investigator or a compliance examiner.
S. Bond: Are those people attached to the organization or outside of the organization? How broad is the pool of people that could actually be asked to do this work?
Hon. C. James: These would be individuals as part of the B.C. Securities Commission.
S. Bond: I think we’re relieved to hear that. This provides some pretty significant powers here. It clearly says that either the executive director or whoever the person is that’s appointed can enter a premises during business hours and examine the records that are held in that business. They can “use, or cause to be used, any means of communication in the business premises.”
[R. Chouhan in the chair.]
When we think about the specific things that are being enabled here, perhaps the minister could outline for us why they’re necessary.
Hon. C. James: Again, the context to this section is that this section can only be used to ensure compliance with the act. That’s the parameter. We talk about parameters around things. This section can only be used related to a compliance review and to ensure compliance with the act.
Similar to an audit, the purpose would be to ensure that the material changes, for example, that the business is reporting have actually occurred — very similar to an audit — and to ensure that there’s compliance with the act. That’s the purpose of this section.
S. Bond: These powers will be used in the event that there is a compliance review. What’s done currently?
Hon. C. James: Again, to set the context, these powers are there currently for the Securities Commission when it comes to registrants. This gives the same powers, the same kinds of investigatory powers and abilities, to reporting entities. It’s not different powers than we have currently for registrants. It, in fact, gives the same powers, then, to reporting entities. So it makes it consistent across the act and consistent across the powers. This gives additional powers, as I talked about.
I use the example of audits, because it’s very similar. It gives the ability to be able to review the information. Currently we can ask for the information from those reporting issuers. We can hope that they comply. We can hope that the information is provided. But this gives us the ability to actually review it and gives us those additional powers to take a look at that — as I said, similar to an audit kind of process.
S. Bond: Thank you to the minister. So in essence, currently the executive director can do these things? I’m assuming that’s correct. We’ll wait and get the answer to that. What this does is that it extends, it enables, the appointment of someone else to use the powers that exist today to do a similar work?
Hon. C. James: The executive director has the ability now to appoint a person. This is extending it to the reporting issuers. It’s the area that it’s being extended to in this section. Currently, the executive director can appoint a person. That exists already. As I’ve mentioned, now they’ll be able to do it with the reporting issuers as well.
S. Bond: Again to the earlier question, what led to the necessity to broaden the expectations around the powers that are already in place?
Hon. C. James: What this does, as I mentioned, is to ensure that the Securities Commission has the ability to use the same powers they have now with reporting issuers. Currently reporting issuers…. We do not have the ability to be able to do these kinds of compliance reviews.
Reporting issuers are significant market participants. They’re people who take part in the market, who should be following regulations. This will give us, then, the ability to be able to make sure that we’re covering with the same kind of process and the same kinds of powers reporting issuers in the same kind of way to make sure that they are being compliant as well.
S. Bond: Let’s just go back to section 52 for a minute. When we look at the clarifying notes about it, it says that this section “provides that a person conducting a compliance review of a reporting issuer” — I get that — “may enter the business premises of the reporting issuer.” What it’s saying is that, yes, the executive director can appoint someone, and they have to do that in writing, but what this does is allow that person who’s now been appointed to actually enter the premises and, I’m assuming, do all of these other things. Is that correct?
Hon. C. James: That’s correct, but I’ll just add the other piece. The executive director can currently appoint someone. They can currently enter into a business if it is related to registrants. They already have those powers for another area; they don’t have those powers now for the reporting issuer. So they’re new powers for reporting issuers. They are not new powers for the registrants, who they already have those powers for.
S. Bond: That is helpful, and I appreciate that.
The minister references this as being similar to an audit. Can the minister, just for our information, give us comparable acts or comparable legislation that include these kinds of powers? For example, here you can go into a business, you can require materials, and you can copy those materials on site. With a receipt, you can remove those materials from the premises. The list is quite extensive. So are there comparable powers in other acts where there are compliance reviews or similar processes? What other acts would this be similar to?
Hon. C. James: Obviously, we don’t have other acts in front of us, but it would be very similar to the Financial Institutions Act and those kinds of acts where you have the ability to go in and do those kinds of audits — to be able to go into someone’s business while the business is operating to take a look at it.
I think it’s important to note in the previous section, as well, that these are the same kinds of powers that are there for the registrant. So they’re already listed in the act. These aren’t new pieces. These are already listed for registrants as well. It will be very similar to tax and other financial institution kinds of processes as well.
S. Bond: It would be safe to characterize that this is not extraordinary — that there are similar powers and there are similar processes in place in other areas and other acts.
Could the minister perhaps just give us a bit more? We certainly understand. We’ve had a lot of discussion about modernizing language and modernizing practice. As we talked about, we’re not just talking about logos and letterhead anymore.
Could the minister just, perhaps, describe to us, in a little more depth, subsection (d), which says, “use, or cause to be used, any means of communication in the business premises,” and secondly, the part that talks about “any electronic device or other system in the business premises in order to examine information contained in, or available to, the electronic device or system”?
Maybe just give us a sense. I assume that’s modernization catching up with the modern practices of people who choose to not do what they should be doing. So maybe just a bit more of a sense of what that means. Again, is that new? Is it consistent with practice across the country as well, across other jurisdictions? Is this list similar to what would occur in other provinces?
Hon. C. James: Yes, this language is common. In fact, I think, as the member will know from the bills that we’ve debated just in the last couple of years, certainly, the issue of electronic communication is something that now is being added to acts. That wasn’t anticipated. Phones and computers really are what you’re talking about in these kinds of sections.
The member also asked whether these sections and this compliance piece were in any other acts. Yes, it’s in Ontario’s act. They’ve added it to their act. In fact, because of the work that’s gone on, it’s also part of the, again, CMA.
As we talked about before, the balance of the chicken or egg and whether you wait and get pieces in…. This is another opportunity where, again, in the draft CMA, this is actually included so that we would hopefully be more than inching towards the changes that need to occur — moving ahead, in fact, on the changes that need to occur.
Sections 52 to 56 inclusive approved.
On section 57.
S. Cadieux: This is, again, a pretty big section. It relates to investigations of fraud, added under part 18.1, via section 80 of the act — reading from front to back and back to front. What will the process be for legally identifying properties that are subject to investigation?
Hon. C. James: I’ll maybe just walk through the couple of steps because I think, certainly for me, that’s the helpful way of identifying it. It would be a process where an investigation has been launched or is about to be launched. So the information has already come forward that gives the Securities Commission their reason to believe that an investigation needs to occur. That piece has already happened.
They’re getting ready to launch it, or they’ve launched the investigation. And they receive information, have a reasonable basis to believe that property has been received or someone knows about property being received. That, then, gives the ability for the Securities Commission to go and investigate that information — to go and question those people, to find out about the information that has been received. Those would be the steps around identifying the properties.
S. Cadieux: Again, just to get my head clearly wrapped around this. Then will the property subject to investigation in the investigation be substantially tied to the fraud? Is that what you’re saying? You’re saying that there’s reason to believe that that particular property, and not any and all property, is tied to the fraud.
What must be proved in advance to provide grounds for investigation? Is hearsay of somebody that lives on the same street enough? Or is there some kind of process that must be undergone to verify, to some degree, that information before this investigative power is launched?
Hon. C. James: As I mentioned, there has to be a reasonable basis to believe that the property has been received. That’s why the investigation occurs before the freezing of the property occurs. So, as the member said, if somebody phoned in and wanted to give a tip and said that they knew something, that would then be investigated before you could move to freezing the asset.
I think this is an important piece. This is the difference between proceeds of crime, for example, and this process. We’re talking about protecting the assets in order to satisfy potential fines or potential assets to be able to be returned to victims. So that makes it a little bit different. It’s not a necessity to prove that the property was bought with the proceeds of crime, for example, as you would see in other legislation.
This is making sure that we’re trying to protect the assets to satisfy potential risks or potential fines that have to be paid in the future. So that’s where there’s a bit of a difference from the existing legislation in different areas.
S. Cadieux: I’m going to make an assumption in this question and then move to the second question, because I think I know what the answer to first question is. I’m assuming that the answer to this will be similar to an answer to my colleague earlier.
With these new investigatory powers and, potentially, the ability to access more properties and more data, would more staff and more resources be required? I am going to assume the answer to that is no, because there’s not an anticipation that there’s going to be a great new flux of investigations as a result of this. If I’m wrong, I’d appreciate an answer. If I’m correct, please move on.
To what extent would the Securities Commission be able to investigate or pursue properties, for example, in other provinces or internationally with the reforms we’re looking at here?
Hon. C. James: The member is quite right. It’s too early to tell. I think it would be a positive if we were required to put more staff in place because we were having more investigations which receive more money back for victims. I think that would be a plus, but it’s too early at this stage to know that kind of process. We expect that with the existing staff, we’ll be able to manage.
These freeze orders would only apply to B.C. If we look at other jurisdictions, we do have the ability, through our investigations at the B.C. Securities Commission, to go further, to go outside our jurisdiction. But then, obviously, you need to look at cooperation with other governments and other regulators outside of the province. So this freeze order applies to British Columbia, but we do have the ability, through the Securities Commission, with investigators, to actually go further and look at properties that have been transferred outside of the province.
S. Cadieux: Now, understanding that we are now expanding the abilities here to be able to potentially freeze property that we think or we have reasonable understanding has been transferred — below market value or whatever — to a third party or to a family member, are there any exclusions on what that property might be? By that, I mean, we’re talking about family that may be completely innocent on any understanding that there was anything going on that was not okay that are now potentially financially liable for the actions of somebody who happens to be related to them. They may not have known there was anything amok.
We don’t hold, for example…. Well, extremely rarely do we hold parents responsible for the actions of their children. Yet we are now looking to hold, potentially, children responsible for the actions of their parents. That, to me, seems pretty broad-sweeping.
Now, understanding we want to get at protecting the victims here…. That’s ultimately the goal, and I understand that. But we don’t want to create a new set of victims. What kind of protection is there here for what could be innocent victims of a family member’s action who now are potentially going to be bankrupted or out of a home because of an action they had no part in, no understanding and no ability to make a different choice at — at a state five or ten years ago, perhaps, when they had no knowledge that this could potentially ever be a circumstance?
When we’re looking at this legislation, there’s no timeline. There’s no backstop as to how far back we can go. That, to me, is somewhat concerning. What about…? Does this count when somebody has potentially invested in an RESP for their child with money that ultimately is, down the line, deemed to have been received through fraud? Is that now adult child’s RESP gone? I’m just trying to understand the potential unintended consequences of this type of provision.
Hon. C. James: I appreciate this discussion. It will come up later in sections, but I think it applies either way. So I don’t mind having the discussion now.
Later in section 80, it talks about the power to freeze and some of the specific steps that have to be taken. I think the member has raised a really important point. It was part of the discussion of the drafting of the legislation — unintended consequences and not wanting to create unintended consequences.
I think it’s important, again, to note that the power, the ability of the Securities Commission is to freeze the assets. Then you’ll have an investigation. So the investigation would occur. The person would be found to be in contravention of the Securities Act, or whatever provisions of the act, and then a penalty is put in place. All of that occurs while the properties are frozen. Then the penalty would be put in place. The properties may or may not apply, depending on the guilt and the penalty, and they may not need those properties. They may or may not apply to the penalties that are in place.
There’s also another step, which is the application to the court. The court can actually provide relief. It’s written right in the act. The court can provide relief if it’s not in the interest of justice. I think the examples that the member used — children who may be innocent of anything that’s gone on…. Those would be the kinds of reliefs that would be there. That’s why that provision is built into the act — to make sure that there aren’t unintended consequences through this process.
S. Cadieux: Thank you, Minister. I appreciate the latitude in switching between the front and back of the act and the explanation about that. It’s one of those things — you know, due diligence. There’s always that possibility, and certainly, we want to make sure that while doing our best to go after the bad guy, we don’t hurt the little guy in the meantime. So I do appreciate your latitude and your answer.
Sections 57 to 60 inclusive approved.
On section 61.
S. Bond: My colleague and I really…. We appreciate that the minister had some latitude with that question. It was probably me that suggested we insert it a bit early there. I don’t want anyone to mistake the intent behind asking those questions or to think that we want to take it easy on fraudsters. That’s not it at all. There are unintended consequences, and I think that the co-critic outlined some of our concerns very, very eloquently.
I think it’s important that we look at the context of the entire body of work. Certainly, the power is significant. I think those are the sections that the minister has referred to as “landmark.” So we want to make sure that we get it right.
It’s not about preferential treatment for fraudsters. It’s making sure that…. I think the way that my co-critic described it was excellent. We don’t want to create a new class of victims by the way that we do this. So we really appreciate the opportunity to have that discussion.
Section 61 talks about preservation orders. Perhaps the minister could describe for us how the preservation orders affect the scope of work that is done by the B.C. Securities Commission.
Hon. C. James: I appreciate the member’s comments. I think this is…. From my perspective, one of the strengths of going through the committee stage is the ability to be able to ask those questions, the ability to be able to have the same kind of discussion that often the minister has had, and individuals have had, in the ministry with staff — the same kinds of questions that have been asked. So I take it as helpful and not any other way.
These actually aren’t new powers for the Securities Act. These are existing responsibilities that a peace officer has, for example, under the Criminal Code. This just provides them…. It’s mirrored in this act because they’re already doing the investigation under their responsibilities under the Criminal Code, and it gives them the ability to be able to do that act under the Securities Act as well. So they’re not new powers, from that perspective. They’re existing powers and responsibilities of a peace officer under the Criminal Code. They’re doing their investigation. This provides them the opportunity to do that investigation under the Securities Act as well.
S. Bond: Can it, then, be described…? Would the minister, then, say that B.C. Securities Commission staff are peace officers for the purpose of enforcing this legislation, or if this is extending additional powers to peace officers specifically? Which would it be?
Hon. C. James: The members are already peace officers.
S. Bond: Can the minister describe for us how these measures will work, from a collaborative perspective, between the B.C. Securities Commission and law enforcement, for example? How would that relationship work in these circumstances?
Hon. C. James: I think the B.C. Securities Commission has its own criminal investigative enforcement team. So they have their own team that they can utilize, but they obviously work cooperatively with the RCMP, with local police, depending on which jurisdiction they’re in. I think they will pull them in and utilize them whenever that’s possible and whenever it makes sense.
I think there is one area where…. If there was risk, for example, through the investigation — risk of physical harm or the need for force — the police would be utilized in those kinds of examples. Otherwise, the criminal enforcement team within B.C. Securities has many of those same powers.
S. Bond: I’m just looking at some of the requirements or some of the powers that these sections enable. Again, there is a significant emphasis — or there is an emphasis, to be fair — on computer data, for example. Can the minister tell us whether or not, again, that’s consistent with other acts, with other practices, when we’re looking at investigations of this nature?
For example, a peace officer may order that a person preserve computer data that are in the person’s possession or control when the person receives the order. We walked through…. There are a number of issues that relate to computers, technology. Can the minister just give us a sense, again, about: is it new? Is it novel? Is it consistent? Is it done? Is that part of normal practice in these types of investigations?
Hon. C. James: These provisions are uniform with the Criminal Code. They’re the same provisions. We basically just put them into the act from the Criminal Code. So they’re uniform provisions, which, I think, is an important piece of information.
Sections 61 to 66 inclusive approved.
On section 67.
S. Cadieux: This section, under subsection (f), adds mandatory minimum sentences for convictions.
Now, this would seem like something that perhaps a right-of-centre government might do and less so something that a left-of-centre government would do. It’s a bit out of line with sort of general attitudes towards justice that have traditionally been touted by the NDP.
For the minister — and it’s not a criticism; it’s a question — isn’t this a bit of an about-face on mandatory minimums as it relates here?
Hon. C. James: I think there are a couple of pieces, again, of context that are important in this one. I think the first one is that we’re talking about large amounts of fraud, when you take a look at the numbers that are here. You’re talking about repeat offenders. You’re talking about people who’ve seen large benefits from defrauding individuals.
The other piece is just to speak to the member’s point around minimum sentences. There are exceptions as well. As the member will see in the legislation, (5.4) actually lists exceptions and also provides the ability for judges to make exceptions and for them to look at the ruling.
We wanted to make sure this was consistent with the changes that have happened in the courts around mandatory sentences, so those provisions are built in as well.
S. Cadieux: What was the process, then, for choosing the $1 million threshold at which that minimum would apply?
Hon. C. James: Again, this is consistent with the Criminal Code around minimum sentences, mandatory sentences.
S. Cadieux: Along the same lines just for…. There has been speculation about the limited constitutionality of mandatory minimums. What has the minister done to ensure that these provisions are Charter proofed?
Hon. C. James: That’s exactly the reason that the exceptions and the ability for the judge to make those exceptions are in there — to deal with the constitutionality issue.
Sections 67 to 70 inclusive approved.
On section 71.
S. Bond: This section deals with the repayment of fraudulent gains. The first question I have is: how will several liability be determined under this section?
Hon. C. James: I think the easiest way to describe this is just to give an example. Again, if a partnership is found liable — so the partnership is found liable through an investigation, through the process — through joint and several liability, all partners are found liable. It basically means they’re all guilty. They all have to pay the penalty. They can sort it out if they want to have a debate about who was most liable or not liable, but this takes away that determination needing to be made by the Securities Commission and basically says that joint and several liability applies. If the partnership is found liable, each partner is then liable.
S. Bond: I guess part of…. Obviously, a major goal of the changes that the minister is bringing forward is to increase the ability for the B.C. Securities Commission to actually collect more fines. There’s a history of significant levies. Having said that, we know that there’s a significant lack of return on collecting those fines.
To what extent…? There have been words mentioned: “We’re hopeful. We think this is going to work.” Maybe the minister could give us a sense of what kind of discussion has taken place around how these changes will be effective. The question is: to what extent will this help the B.C. Securities Commission and their recovery efforts?
Certainly, that’s been one of the major goals that the minister has reflected on when she’s talked about this legislation. So can the minister give us a realistic sense…? What is the test of success? How are we going to know? What are the goalposts along the way? Has that kind of discussion taken place with the B.C. Securities Commission, to say: “All right. You’re going to get a whole bunch of new tools and the ability to enforce and collect”? What is this provision, and all of these in their totality? What are the expectations in terms of return to the B.C. Securities Commission?
Hon. C. James: This is a critical question. It’s been exactly the conversation that has occurred with the B.C. Securities Commission, certainly in my time as minister, which is all I can speak to. It’s exactly the marks of success in being able to collect fines and being able to return money to victims and to not see the fraudsters benefit by having properties transferred, by being able to hide them from a fine that’s in place.
People talk often about the powers around retirement savings, for example. Well, these are people who often defraud individuals of their retirement savings. Those are exactly the kinds of situations that we’re talking about that often occur, heartbreaking stories of individuals.
[J. Isaacs in the chair.]
The success will be a measure of the amount of fine money that’s collected, of whether properties have been able to be seized, whether that’s had some success in returning money to victims. We’ll be doing a very close track.
It’s hard to set goalposts with some of these, because they are new, and I think that’s important to recognize — that these are, as we’ve talked about, broad-ranging powers. I think, as we collect more, as we get more information, we’ll be able to start setting more specific benchmarks, but it will be very clear in taking a look at the moneys that we’ve been able to return to victims, the properties that have been able to be seized, and people aren’t benefiting from the proceeds of crime. If we’re able to have some of those successes, then I think it will be a success for the people of British Columbia and hopefully a deterrent.
I think that’s the other piece in all of this. It’s a deterrent for someone who’s taking a look and thinks: “I can get away with it easily; I know I can hide my RSP” or “I know I can continue driving; I don’t have to worry about my licence” or “I know I can transfer this property over.” If we’ve got people and we have a few cases where we’re able to show that, I believe the deterrent piece is important as well.
S. Bond: I wondered if the minister…. I understand the challenge in putting goalposts in place and looking at how we monitor. When we review the service plan, for example, of the B.C. Securities Commission, has the minister contemplated performance measures, for example, around this kind of focus? You know, there’s going to be a brand-new set…. And the minister has been very straightforward about: “We’re going to lead the country here.” We’re going to be on our own, in many ways, with these kinds of enforcement tools.
Is there any contemplation of, for example, building in performance measures or some sense of how that tracking will take place in a very transparent way — for example, through the service plan?
Hon. C. James: I appreciate the discussion, because I think it’s exactly the kind of conversations, again, that we’ve been having. We already have in the mandate letter, in the performance measures, to increase the fine collection, to be able to provide the enforcement. Those pieces are there.
My hope is that we will be able to be more specific. I think it’s always going to be difficult, because you can take a look at the amount of uncollected fines and see two or three individuals, and most of that money was related to those specific cases.
It may seem like a huge amount of money, but in fact, it’s two or three individuals who had a very large fine, who had a very large case. That is outstanding debt that we may never be able to collect.
I think it will be something, with time, that we’ll be able to get more specific on as we move along. But I think the important piece is that this is a focus. That’s why the legislation is coming forward, because it has been, in fact, as part of the mandate letter, as part of the requirements, as part of the priorities for the Securities Commission and part of the priorities from us as a government as well.
M. Lee: I just wanted to join my colleague, the member for Prince George–Valemount, co–Finance critic, on this line of questioning. To pick up on the point, can the minister comment about the performance of the B.C. Securities Commission, as it comes to collecting on these penalties, in comparison to the Ontario Securities Commission in terms of level of effectiveness and return in collecting these fines and penalties?
Hon. C. James: Obviously, very different security commissions. When it comes to fraud, you see challenges in Ontario as well. They’re not doing much better than the challenges we’re facing, for a whole number of reasons, when it comes to the issue of the investigations and the outstanding debt.
I always think it’s an interesting statistic to take a look at. As the members will know, there’s just over $500 million in uncollected fines out there right now. So you think about the number of cases that that may involve, and I think that’s an interesting statistic to talk about the kinds of cases we deal with. About 73 percent of that existing outstanding debt relates to 11 cases — 11. So that shows, again, the magnitude of some of these cases.
If we get to the place where the fraudster has hidden their properties and has moved their assets out, that creates a large portion of those uncollected fines that we just aren’t able to access. As I said, because they are just a few cases, that creates some of the difficulty.
We have had those…. The Securities Commission has had some successful collection activities in the past year. Bossteam — I know members will be very familiar with that. We’re close to completing that matter. That could be as high as $6.5 million, which will be money that will be secured, again, using freeze order powers.
On the Michaels case — again, not as large, a million dollars. But that’s a huge amount of money to the 484 victims — in this case, many of them elderly — who will be able to receive some funds there. Then we’ve also had a disgorgement order recognized in the U.S., which, again, is a very big step over this past year, where the Nevada court actually recognized that issue.
I think there are, no question, continued challenges ahead, but the hope is that these changes will make some of the difference when it comes to collecting fines and the ability for the tools that will be needed by the Securities Commission to be able to get their work done.
M. Lee: Certainly, as we’ve said in our second reading speeches, we all agree that we need to continue to ensure that those who defraud British Columbians are brought to justice and that we recover funds through penalties or other measures in order to do so.
Could I ask, again, in terms of the composition…? I appreciate that we have staff here from the B.C. Securities Commission. Just from their general understanding, as they might share their understanding with the minister with this House, what would be the makeup of the outstanding equivalent level of penalties and fines that would be currently existing in Ontario? Would it be a similar makeup, where 73 percent — $365 million out of the $500 million — is related to 11 cases? Is that similar in Ontario as well?
Hon. C. James: Ontario doesn’t provide that information. We certainly know that many of the similar kinds of…. I would expect that there’s not a huge difference across the country, but those specific statistics are not provided through to us from the Ontario Securities Commission.
Again, I think it’s important to note that their numbers that they do provide are on the broad cases — a very different Securities Commission. It’s not simply on the fraud pieces. It’s also on individuals who are found guilty who want to continue to practise in the market and will pay their fine to be able to continue to practise in the market. So there’s also a different kind of magnitude of the challenges that Ontario faces because of the size of their commission.
M. Lee: I have been provided with information, just between the time that I asked the question and received the response. My understanding is that in Ontario…. And perhaps general understanding might be sufficient or of some assistance here with the B.C. Securities Commission staff.
There are actually some documents that are publicly available on the commission website, as I’ve come to understand in the last few minutes. It appears that when they look back at the amounts for 2018, for example, the amount that was assessed was $12 million, and the amount that was collected was $5.6 million, with a 47.1 percent recovery rate.
Just focusing on that first set of figures, could I ask: what is actually the success rate in any given calendar year? Let’s take the 2018 equivalent. What was the amount of fines and penalties outstanding at the beginning of that year? And what was collected through the course of the 12 months for that fiscal year?
Hon. C. James: This is always the challenge with information and comparing apples and oranges. Ontario has had a number of large settlements over this last year or so with financial institutions that don’t want to get out of the market, that have paid their fines to be able to keep in and continue their trading. So that makes a big difference to the numbers. They are institutions, and therefore, those are large fines that have been paid.
It’s also very difficult — and that’s why the numbers aren’t kept year to year — to talk about year-to-year numbers. You will have many cases that will take two, three, four years to be able to come to fruition that will show no collection over the years because there hasn’t been a collection. But there may be progress on the case, or they may be getting close to the ending of a case. It may have court appeals, which often occur, that still have to happen. So the numbers aren’t kept on a year-to-year basis because it’s not a good, accurate picture of where we’re at.
I think the bigger issue — from our perspective and, certainly, from my perspective — through the commission is to take a look at increases year over year; to take a look at cases moving further ahead; to look at winning cases that are coming forward; to be able to, as I talked about earlier, find properties that are able to be frozen that could be utilized for victims. I think those are the important pieces.
While we keep track and certainly watch the numbers that are here, I think it’s important to recognize the length of time and the challenges that are created in bringing forward some of these fines and some of these penalties.
M. Lee: Certainly, let me just say that we recognize the importance of the role that the B.C. Securities Commission plays and all the professional staff there. It’s not easy, certainly, to prove fraud as well as to collect, and we’re seeing that, of course.
The minister is, no doubt, quite correct. When I look at the information I’m being provided, there is a bit of an apples-and-oranges aspect to it. That is, the data that I quoted, or gave some indication of, does split out into settlements versus contested hearings. So we’ve got…. For example, in the year that I mentioned, 2018, of the $12 million total, about $6 million was settlement, and $6 million was contested. Of the $6 million that was settlement, close to 90 percent was recovered — of course, to the minister’s point — but on contested, none were.
When you look at the overall numbers, though, which is something I would like to speak to, since the overarching period dating back to 2005, there is a similar composition of numbers, which is about $77 million contested, $48 million settlement. Of the $48 million settlement, about 91 percent was recovered. So when we look at the contested number, perhaps I could ask then: what is the makeup of the $500 million that’s outstanding?
Hon. C. James: A vast majority of the $500 million is contested. In fact, in a number of cases, individuals are in jail, and individuals have declared bankruptcy. The member will remember I was talking about the areas we want the federal government to be involved with us in, and that’s part of why we think it’s so important.
For example, since January 2017, the Securities Commission has participated in ten such bankruptcies. There is $19 million there, where people have declared bankruptcy, and therefore, the fines are discharged. We don’t have an ability to be able to collect. It’s exactly those kinds of examples that I think point to the need for this work. That’s so important to do everything we can to try to collect those dollars that are there.
M. Lee: Just to understand, because of the approach that has been utilized, the number that is currently outstanding. I certainly appreciate the challenges with fraudulent conveyance or bankruptcy-type situations. There are ways, certainly, that we need to continue to be vigilant to get around those sorts of activities or actions taken to avoid repaying the funds. Can I ask the minister, in terms of the approach by the commission as to the level of penalty being ascribed, when you look…?
Again, as a point of comparison — only because I’m interested to know how the commission is approaching the setting of penalties and fines — is there a greater propensity, let’s say, to want to send a signal to the market and to investors about the amount of the penalty by ascribing a greater value to that number or that penalty as compared to Ontario? In other words, when we look at the amount of the penalties that are being sought, either by the executive director or that are ultimately awarded or granted by the commission — ordered by the commission, that is — are those amounts higher in British Columbia than in Ontario?
Hon. C. James: I think this, again, is the challenge of apples and oranges.
Each individual case goes through a tribunal. This is the same process in Ontario as it is in British Columbia, so it’s an independent tribunal. They’d look at the evidence. They do a review of the case. They look at the extreme. They look at the challenges. They look at the penalties and put them in place.
It’s hard to compare whether our penalties are more severe than their penalties. Again, it will really depend on the case, the extreme nature of the case, the money that we’re talking about. So very difficult to compare those kinds of numbers. But both are done through independent tribunals that look at the evidence and make their decisions based on that.
M. Lee: Thank you for that response. I just want to correct the record. The numbers I was quoting from earlier, relating to the $125 million comprised of $77 million for contested and $48 million for settlement from the Ontario Securities Commission, were actually the figures for 2019.
When you look back at the last two years — $125 million in total, $77 million contested in 2019, and $6 million in the previous year, in 2018 — that would amount to $83 million in contested.
The $500 million that we’re focused on here in British Columbia, from what date does that outstanding penalty amount arise from? From how far back does it arise?
Hon. C. James: This is the total amount outstanding. So it’s not in a particular year. This is the total amount that’s outstanding for the B.C. Securities Commission.
M. Lee: I appreciate that it’s the total amount outstanding. But when was the first amount that’s included in this $500 million determined to be outstanding? When did it become outstanding?
Hon. C. James: We’ll get that information for you.
M. Lee: I’m just trying to get a point of reference here. It appears that Ontario is sitting at $83 million currently. I don’t know about the previous years, so I don’t know what else is outstanding from 2017, 2016 or 2015. But by order of magnitude, given the nature of Ontario….
It may be that there is more fraudulent activity here in British Columbia. Unfortunately, that might be the case. But in the absence of that general information…. I appreciate that it’s difficult to compare, and I appreciate that we don’t have all the information for the purpose of this discussion.
I wanted to, then, go to one specific example. When the minister referred to 73 percent and 11 cases which arise that provide for that amount, which is $365 million, is it…? One of these cases, if I could ask first, just to confirm, is the Samji decision back in 2015. That was for an award of $33 million.
Does that comprise the current amount that’s outstanding and is one of the 11 cases that the minister referred to?
Hon. C. James: That’s correct. That is one of the 11 cases. Just to add a little more information for the member, that 73 percent that we talked about…. The circumstances for those 11 cases are bankruptcy, jail, court-ordered restitution or an expired limitation period on the debt for those cases. So that shows you, again, the magnitude and the challenges that we face.
M. Lee: As we talk, by way of an example, of what the commission is faced with, the bankruptcy proceedings certainly were part of the proceedings here, as I understand it. But here is an example where the executive director sought an administrative penalty of $100 million being, as quoted in the decision, “proportionate to the harm done and sufficient to address the other factors relevant” in the case that occurred.
This was a case of fraud against no fewer than 200 investors by a notary, so clearly an individual who was found to be guilty of those charges and others and certainly has the liability to deal with here, with the commission. But that $100 million that was originally sought was reduced, at least through the order of commission, to a $33 million administrative penalty.
This is in the context where it was also cited in the decision that the individual had retained substantially less than $3.8 million from the investors. Clearly, we want to get all the money back for all those investors who were defrauded.
In terms of understanding a penalty approach, just using this as an example for the purpose of the discussion of this bill and at the committee stage, could I ask the minister if she could provide to us a general overview about the approach the commission uses when we look at, again, the original penalty that was sought at $100 million, down to $33 million for the order of the commission? I’m recognizing that there’s difficulty recovering.
I understand that this person is in her 60s. She’s declared bankruptcy. Who knows where the money went? I appreciate that we need to get it back. But the approach that’s being utilized here at that level — were there opportunities to recover funds by way of settlement on this basis at a level less than $33 million? Or how has that process worked in this regard, including in the face of setting such a high expectation of penalty in the first place?
Hon. C. James: There’s always the discussion, and that always occurs in the Securities Commission, to look at earlier settlements, to look at reduced penalties, to look at incentives to settle. If there’s an opportunity to be able to get money and return it to the victims, that’s always a discussion that occurs. Those discussions occur before something goes to a hearing, to a tribunal.
Then the tribunal, as I mentioned, is independent, so they don’t have a formula they follow. They look at prior cases. They look at evidence. They look at magnitude. They look at all of that decision before they make their ruling. But there’s always, as I said, the opportunity before it goes to tribunal to look at earlier settlements, to look at reduced penalties and to look at what is possible to be able to get money back for victims.
M. Lee: Thank you for that response.
Let me ask the question a different way. In a case of this nature — recognizing that staff would understand more than anyone else in the chamber what the nature of the case that we’re talking about is — is it common to be seeking orders at the full recovery level, the $100 million level and to be ultimately ordered at a level at…? Basically, in this case, the order of magnitude was $33 million. Is that a common approach that is being utilized by the commission?
Hon. C. James: I think it’s important to note, again, that the tribunal looks at each individual case. There is no common approach. There is no usual approach. They look at each individual case. They take a look at the magnitude of the case. They take a look at the evidence that’s there. They look at prior cases that are in place.
As I said earlier, the earlier settlement is always a discussion that occurs, but there isn’t a common practice. In fact, each individual case is individual and is dealt with through that process in an independent way.
M. Lee: Speaking about settlement, what is the rate of settlement success by the commission on their administrative penalties?
Hon. C. James: Certainly on settlements, we have much higher success. The Securities Commission has much higher success in actually receiving the money.
M. Lee: Yes. I certainly would expect so once a settlement is reached.
Let me rephrase the question by asking: how successful is the commission reaching settlement agreements with those who are in the course of a proceeding?
Hon. C. James: Again, coming back to the unique circumstances of individual cases, the B.C. Securities Commission always entertains a settlement. That’s always part of the process, as I talked about through an early settlement, and will always entertain that process to be able to get the money to return.
M. Lee: I just really want to understand that. By way of example, again, if we look at the year 2018, how many cases was the commission having to deal with and address? Of that number of cases, how many cases was the commission able to get to settlement?
Hon. C. James: I’m not trying to frustrate the member, but again, I’ll give the same response as I gave last time, which is that settlements aren’t done year by year because many of them, whether we’re talking about settlements or tribunals, are a longer period of time. They’re not done over a calendar year. That’s why we take a look at the collected fines and the fines that come in as part of those measures that are there.
M. Lee: I will just say that I think the reason why I’m asking these questions, and the reason why the co-Finance critics are doing the same, is because I think it’s important to understand how we got here. The explanation for the need for the changes in the bill — which many, on the face, seem reasonable and generally necessary — partly is on the basis that we have this significant amount of outstanding administrative penalties, which, in terms of British Columbians who have been wronged, defrauded, ought to be recovered. Absolutely.
How did we get here is the question. How do we continue to ensure that the commission is given the right tools and resources to enforce the laws of this province, and how do we do it more effectively?
The reasons for the questions have been to try to get at exactly how effective the commission has been and how it will go forward into the future with these new tools. In the absence of true clarity around that, I would just say, for the record, that it’s important that the commission continues to be able to demonstrate to British Columbians its effectiveness and efficiency at dealing with public taxpayer dollars and resources to ensure that we are protecting our investing public, certainly.
We’re doing that through a rule change as proposed in this bill. There is certainly a level of accountability here in terms of how this enforcement agency is operating and how it’s approaching penalties being set.
The questions I was asking relating to the Ontario Securities Commission were only as a basis of comparison. When I pick two commissions in this country that are leading, it’s British Columbia and Ontario. Certainly, I’m sure Alberta will think otherwise, or the AMF in Quebec, but I would say that knowing the commission, as I have for 20 years of practice, I know of their reputation and their work.
All we’re expecting as legislators in this assembly is clarity and understanding as to the performance. So when the co-Finance critic and the member for Prince George–Valemount ask the question, I think it’s an appropriate question to be asking in terms of how this fits into the service plan. What measures of performance is the Minister of Finance looking for here? These are important questions to be asking. I’m sure that we’ll continue to ask those questions of this government.
I will, with those comments, turn it over to my colleagues for the next set of questions.
Section 71 approved.
On section 72.
S. Bond: Section 72 talks about enforcement orders. We wanted to ask a number of questions, although it is consequential, obviously, to the amendments made to the bill.
With respect to the new entities that are considered, and the minister has listed those a couple of times for us, for change of practice orders under this section, what is the scope of changes that may be required for benchmarks and trade repositories?
Hon. C. James: There aren’t any changes at this point in place because this is new, because we’re just putting the framework in place. So those discussions will still occur. We’ll take a look at what rules might need to be put in place, but there aren’t any at this stage because this is just putting the framework in place.
Then if I may as well, Chair, through you to the member from Langara, who asked the question earlier around the date and the marker for the $506 million, that first started being counted in 1996.
S. Bond: Thank you to the minister for her answers to both of those questions.
Can the minister then explain, perhaps in a bit more depth, what process will be undertaken in order to determine the change of practice orders under this section? We don’t know what they are because they don’t exist. What is the process that will be undertaken in order to determine what the scope of those changes might be for those new entities?
Hon. C. James: Again, these are newly added, as the member knows, but the process would be the same. If a benchmark administrator did something that needed to be investigated or needed to be reviewed, it would be the same as the existing structures that are there. There would be an investigative order. There would be an investigation. There would be an enforcement order, if needed. It would follow the same process — a hearing — that would be in place for the other organizations that are already part of the Securities Commission. It wouldn’t be any different.
S. Bond: Can the minister advise us as to whether or not there is a specific geographic jurisdiction where the enforcement orders would be restricted to? What is the geographic boundary or jurisdiction of the enforcement orders?
Hon. C. James: It would be our province. That’s where we would be able to enforce our orders.
S. Bond: Thank you.
We’ve spent a lot of hours talking about new tools, new responsibilities and still more work to be done for the B.C. Securities Commission. We’ve talked about the effectiveness of fine collection — all of those things.
I’m interested in knowing exactly whether or not the minister thinks there’s going to be additional resource requirements. I understand that she said: “Well, we don’t expect a whole flood of new things to happen.” But the mandate, the tools and the expectations are going to be higher. We’re going to have to have monitoring of whether or not the fee collection provisions are working.
It sounds like there’s a lot more work that the B.C. Securities Commission is going to be expected to do. Certainly, one would assume that’s the case, considering they’re getting a whole bunch of new tools and there are specific goals and outcomes that are anticipated.
Are there going to be additional staffing requirements, resources? How is the Securities Commission actually going to manage the workload that is assumed by these new changes?
Hon. C. James: I think the important part to note here is that there are a lot of resources that go in now to existing investigations. Part of the role of bringing forward these changes and part of the hope of bringing forward these changes is that they will provide more effective tools to the individuals doing those investigations.
The investigations are going on now. We’re going through the process of investigations. This will give them more effective tools, hopefully, to be able to actually have an investigation perhaps wrap up sooner, perhaps find resources that could then be utilized to be able to pay back victims.
At this point, we don’t, in fact, anticipate that it will need a huge amount of new resources. We believe it could, in fact, speed up the process. It could, in fact, provide better tools and result in more money coming in when it comes to fines and collections that then can be returned to victims.
I think we’ll have to monitor it. There’s no question. As we’ve talked about, many of these changes are new, and we’ll need to monitor it. But I think there is the possibility that, in fact, it will provide better tools and more effective, efficient tools to the existing investigations and the investigators that are doing the work right now.
S. Bond: Is there a regular practice at the B.C. Securities Commission that looks at best practice across the country? I mean, we’ve expressed our significant concerns about the fact that there is not a national securities regulator. One of the very poignant arguments made in favour of having one is the distribution of resources and looking at how they can be used more effectively at a national level. So does the B.C. Securities Commission regularly self-assess against other best practice across the country?
Certainly, we understand that some of these provisions are catch-up and some of them are moving ahead of others. Perhaps, if the minister could articulate for us…. What is that self-assessment process? How are we assured that we’re getting the absolute best use of the resources that exist? What are those self-assessment tools that the B.C. Securities Commission would use?
Hon. C. James: Yes. Those kinds of discussions and conversations occur on a regular basis. There are opportunities for, obviously, the heads of the securities commissions across the country to meet on a regular basis and discussions, certainly, through the cooperatives market as well. Just as an example, we just had…. Most recently, the enforcement teams meet from across the country to talk about collections and some of the best practice around collections and things that were working in other jurisdictions.
That’s a critical part of the ongoing work of the Securities Commission, I think. As all the members have said in this House, criminals don’t know boundaries and don’t know borders. So it is critical for that information to be shared, and that does occur on a regular basis.
Sections 72 to 77 inclusive approved.
On section 78.
S. Cadieux: We will get on to section 78, but I think the minister is probably ready for a break, as probably is the House. So noting the hour, I would suggest we rise, report progress and seek leave to sit again.
Motion approved.
The committee rose at 6:25 p.m.
The House resumed; Mr. Speaker in the chair.
Committee of the Whole (Section B), having reported progress, was granted leave to sit again.
Hon. C. James moved adjournment of the House.
Motion approved.
Mr. Speaker: This House stands adjourned until 1:30 tomorrow afternoon.
The House adjourned at 6:27 p.m.
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